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Colorado Secretary of State Proposes New UCC Administrative Rules

The Colorado Secretary of State’s office recently proposed new administrative rules in preparation for implementation of the new secured transactions information management system. The proposed rules include several new and innovative provisions.

Mandatory Electronic Filing of UCC Records: New Rule 103 provides that electronic delivery is the sole method permitted for filing UCC records. Written forms will no longer be accepted, except in a “hardship” situation. If, as expected, the rule becomes final, then Colorado will be the first state to mandate electronic filing. Other states are likely to follow Colorado’s lead because filing offices are under constant budget pressures and electronic UCC filing substantially reduces costs.

Limitation on Characters in Debtor Names: A filing office may refuse to accept an indecipherable record. Under new Rule 202.4, a record is indecipherable if it contains any characters not found on a standard QWERTY computer keyboard (ASCII characters 32 through 126). In some cases this rule may prevent the secured party from complying with the debtor name requirements of UCC Section 9-503(a). For example, the filing office would reject a record that provides the individual last name as “PEÑA,” even if that is the correct name of the debtor.

Mandatory Electronic Search Requests: Under new Rule 106, the Secretary of State will no longer accept written search requests (the UCC-11 form). Users must conduct all searches using the new online secured transactions information management system. The filing office will offer certified searches through the online system.

Limitation on Number of Search Results: New Rule 503.1 limits search results to 500 matching records. The proposed rules are silent regarding how a searcher can obtain a complete search of a debtor name that produces more than 500 results.

Non-Uniform Standard Search Logic: The majority of states, including Colorado, currently use the Model Standard Search Logic (“MSSL”) developed for the implementation of Revised Article 9. New Rule 503.2 departs from MSSL in two aspects, it disregards “A” and “AN” if those words appear at the beginning or end of an organization name and the list of ending noise words disregarded by the search logic changes to better reflect the entity types set forth in Colorado law.

The Colorado Secretary of State scheduled a hearing on the proposed rules for March 1, 2012. If adopted, the new rules will take effect when the filing office implements its new secured transactions information management system later this year. A copy of the proposed rules can be found at: http://www.sos.state.co.us/pubs/rule_making/rules.html